Excerpt:.....income-tax act, 1922 and article 226 of constitution of india - respondent assessed as karta of hindu undivided family (huf) up to assessment year 1952-53 - compromise decree passed between members of such family - income-tax officer passed order of partition accepting claim of respondent under section 25-a in 1954 - for assessment years 1953-54, 1954-55 and 1955-56 members of such family assessed as 'individuals' - income-tax officer issued notice under section 34 to respondent as karta of such huf to file return on income chargeable to tax for assessment year 1955-56 stating such income escaped assessment - respondent filed writ petition under article 226 for quashing said notice - high court decided notice under section 34 is invalid and offended principle against double taxation -..........year 1952-53, therespondent, bachulal kapoor, was assessed to income-tax as karta of the hinduundivided family consisting of himself, his wife and a minor son. in a suitfiled by the wife and the son of bachulal kapoor against him, a compromise waseffected between the parties and on october 20, 1952, a compromise decree waspassed. on january 18, 1954, the income-tax officer, a-ward, lucknow, passed anorder accepting the claim under s. 25-a by the respondent that the family waspartitioned. for the assessment years 1953-54, 1954-55 and 1955-56, the membersof the family were assessed as individuals. on march 24, 1960, the income-taxofficer issued a notice under s. 34 of the act to the respondent as the kartaof the hindu undivided family requiring him to file a return within.....

Judgment:

Subba Rao, J.

1. This appeal by special leave arises out of the order of the High Court ofJudicature at Allahabad quashing the notice issued by the appellant under s. 34of the Indian Income-tax Act, 1922, hereinafter called the Act, to therespondent as the karta of a Hindu undivided family for the assessment year1955-56.

2. The facts may be briefly stated. Up to the assessment year 1952-53, therespondent, Bachulal Kapoor, was assessed to income-tax as karta of the Hinduundivided family consisting of himself, his wife and a minor son. In a suitfiled by the wife and the son of Bachulal Kapoor against him, a compromise waseffected between the parties and on October 20, 1952, a compromise decree waspassed. On January 18, 1954, the Income-tax Officer, A-Ward, Lucknow, passed anorder accepting the claim under s. 25-A by the respondent that the family waspartitioned. For the assessment years 1953-54, 1954-55 and 1955-56, the membersof the family were assessed as individuals. On March 24, 1960, the Income-taxOfficer issued a notice under s. 34 of the Act to the respondent as the kartaof the Hindu undivided family requiring him to file a return within theprescribed time of his world income on the ground that the respondent's incomechargeable to tax for the assessment year 1955-56 had escaped assessment andalso was under-assessed. Thereupon, the respondent moved the High Court atAllahabad under Art. 226 of the Constitution for quashing the said notice ontwo grounds, namely, (i) the income in respect of which the return had beencalled for had already been assessed in the hands of the individual members ofthe family and, therefore, the said income could not be assessed again as thatof the Hindu undivided family; and (ii) the Hindu undivided family had ceasedto exist, that the partition of the family was recognised by the Income-taxOfficer under s. 25-A of the Act, and, therefore, no valid notice could beissued to the respondent in his capacity as the karta of the Hindu undividedfamily. On an admission made by the learned counsel for the Revenue, thenotice, so far as it related to the re-assessment of the income on the groundof under-assessment, was ignored as it was inconsistent with the alternativeground of escaped assessment. The High Court held that the said notice wasinvalid as it offended the principle against double taxation. As the assessmentof the same income in the hands of the members of the family for the same yearwas not set aside, the High Court held that the same income could not beassessed again in the hands of the Hindu undivided family by taking proceedingsunder s. 34 of the Act. In that view, it thought that it was not necessary togo into the second ground, namely, whether the proceedings under s. 34 of theAct could have been validly taken in view of the orders passed under s. 25-A ofthe Act. Pursuant to the view expressed on the first question, the said noticewas quashed. Hence the appeal.

3. The 4th respondent in Civil Appeal Nos. 805 and 806 of 1962 filed CivilMiscellaneous petition No. 2655 of 1965 praying for permission to intervene inthe present appeal on the ground that a common question arose in the saidappeals as well as in the present appeal and it was ordered.

4. Mr. A. V. Viswanatha Sastri, learned counsel for the Revenue, contendedthat under the Act a Hindu undivided family and the individuals thereof weredifferent assessable entities; that, as the alleged compromise decree was acollusive one, the said Hindu undivided family continued to exist as a separateentity; that it had escaped assessment; and that, therefore, subject to theconditions laid down in s. 34 of the Act, the Income-tax Officer was within hisrights to issue a notice thereunder.

5. The argument of Mr. C. P. Lal, learned counsel for the respondent, may beput thus : the Income-tax Officer had assessed the same income assessable forthe year 1955-56 in the hands of the individual members of the family and theassessments made on them had become final. Having elected to assess theindividuals as separate entities, the Income-tax Officer had no jurisdictionunder the Act to assess the same income in the hands of a separate assessableentity, namely, the Hindu undivided family. He also relied upon the principleof avoidance of double taxation alleged to underlie the scheme of the Act inrespect of the same income.

6. On the question argued before us, the following provisions of the Actwill be relevant :

'Section 3. Where anyCentral Act enacts that income-tax shall be charged for any year at any rate orrates, tax at that rate or those rates shall be charged for that year inaccordance with, and subject to the provisions of, this Act in respect of thetotal income of the previous year of every individual, Hindu undivided family,company and local authority, and of every firm and other association of personsor the partners of the firm or the members of the association individually.

Section 14. (1). The tax shallnot be payable by an assessee in respect of any sum which he receives as amember of a Hindu undivided family where such sum has been paid out of theincome of the family. . . . .

Section 2. (9) 'person'includes a Hindu undivided family and a local authority.

Section 22. (1) The Income-taxOfficer shall, on or before the 1st day of May in each year, give notice, bypublication in the press and by publication in the prescribed manner, requiringevery person whose total income during the previous year exceeded the maximumamount which is not chargeable to income-tax to furnish, within such period notbeing less than sixty days as may be specified in the notice, a return in theprescribed form and verified in the prescribed manner, setting forth (alongwith such other particulars as may be required by the notice) his total incomeand total world income during that year.

Section 34. (1) If -

(a) the Income-tax Officer hasreason to believe that by reason of the omission or failure on the part of anassessee to make a return of his income under section 22 for any year or todisclose fully and truly all material facts necessary for his assessment forthat year, income, profits or gains chargeable to income-tax have escapedassessment for that year, or have been under-assessed at too low a rate, orhave been made the subject of excessive relief under the Act, or excessive lossor depreciation allowance has been computed,.............. he may in casesfalling under clause (a) at any time............. serve on the assessee, or, ifthe assessee is a company, on the principal officer thereof, a noticecontaining all or any of the requirements which may be included in a noticeunder sub-section (2) of section 22 and may proceed to assess or re-assess suchincome, profits or gains or recompute the loss or depreciation allowance; andthe provisions of this Act shall, so far as may be, apply accordingly as if thenotice were a notice issued under that sub-section :

. . . . .'

7. The gist of the said provisions may be given thus : A Hindu undividedfamily is a separate unit of assessment. It is a distinct assessable entity. Itis a 'person' within its definition in the Act. It is liable to beassessed to income-tax in respect of its income. A member of that Hinduundivided family is not liable to pay any tax in respect of any sum which hereceives as a member of that family out of the income of that family. If thesaid Hindu undivided family has escaped assessment for any year, the Income-taxOfficer, subject to the conditions laid down in s. 34(1) of the Act, may issuea notice thereunder calling upon the said Hindu undivided family to submit areturn of its income for that year and proceed to assess it in terms thereof.It is manifest from a combined reading of the said provisions that theIncome-tax Officer can issue a notice to a Hindu undivided family under s. 34of the Act on the ground that it has escaped assessment.

8. The impugned notice under s. 34(1) of the Act issued to the respondentreads thus :

'Whereas I have reason tobelieve that your income assessable to income-tax for the assessment year1955-56 has

(a) escaped assessment,

(b) been under-assessed,

I, therefore, propose to reassessthe said income that has (a) escaped assessment, (b) been under-assessed.

I hereby require you to deliverto me not later than 30th March, 1960, or within 35 days of the receipt of thisnotice, a return in the attached form of your total income and total worldincome assessable for the said year ending 31st March 1956.'

9. In the counter-affidavit filed by the Income-tax Officer in the HighCourt it was stated that he had reason to believe, in consequence ofinformation in his possession, that income, profits or gains chargeable toincome-tax had escaped assessment. His information was that notwithstanding thecompromise decree the members of the family were living together, had jointmess and the business was run by the respondent. In short, the case of theRevenue was that the compromise was a make-believe one and the family in factcontinued to be a joint Hindu family. If the case of the Revenue was true - onwhich we do not express any opinion-and the fact of the continuance of thejoint Hindu family was kept back from the knowledge of the Income-tax Officer,it would be a clear case of the said family escaping assessment during therelevant year. If that be so, s. 34(1) would immediately be attracted and thenotice issued would be good. But, it was contended that under s. 3 of the Act,the Income-tax Officer had the option to assess either the Hindu undividedfamily or the members thereof separately and that, as the said Officer, inexercise of the option, had assessed the individual members of the family, hehad no longer any jurisdiction to assess the Hindu undivided family. In supportof that contention reliance was placed on a decision of this Court inCommissioner of Income-tax, U.P. v. Kanpur Coal Syndicate : [1964]53ITR225(SC) . Therein, construing s. 3 of the Act, thisCourt observed :

'The section expressly treats an association ofpersons and the individual members of an association as two distinct anddifferent assessable entities. On the terms of the section the tax can belevied on either of the said two entities according to the provisions of theAct. There is no scope for the argument that under section 3 the assessmentshall be only on the association of persons as a unit though after suchassessment the share of the income of a member of that association may be addedto the other income under section 14(2) of the Act. This construction wouldmake the last words of the section viz., 'members of the associationindividually', a surplusage.'

10. But, these observations in the context of the present case have nobearing. The exercise of the option to do one or other of the two alternativesopen to an officer assumes knowledge on his part of the existence of twoalternatives. If the case of the Revenue be true, the Income-tax Officer at thetime he assessed the individual members of the family had no knowledge that aunited joint family existed; he presumably proceeded on the basis that the saidfamily had really ceased to exist under the terms of the compromise decree.This is, therefore, not a case of election between two alternative units ofassessment, but an attempt to bring to tax the income of an assessable entitywhich had escaped assessment. That apart, under s. 3 of the Act, in the matterof assessment, there is no question of any election between a Hindu undividedfamily and a member thereof in respect of the income of the family. If a Hinduundivided family exists, under s. 3 of the Act the Income-tax Officer has toassess it in respect of its income. Indeed, under s. 14(1) of the Act, any partof the income received by its members cannot be assessed over again. While s. 3confers an option on the Income-tax Officer to assess either the association ofthe person or the members of the association individually, no such option isconferred on him thereunder in the case of a Hindu Undivided family, as itsexistence excludes the liability of its members in respect of the income of theformer received by the latter.

11. It was then forcibly brought to our notice that the said view would besubversive of the doctrine of 'double taxation'. It was said that asthe orders of assessment on the individual members of the said family had becomefinal, if the Income-tax Officer was permitted to assess the Hindu undividedfamily for the same assessment year, tax would be imposed on the same incometwice over. It is true that the Act does not envisage taxation of the sameincome twice over 'on one passage of money in the form of one sort ofincome'. It is equally true that s. 14(1) of the Act expressly debars theimposition of tax on any part of the income of a Hindu undivided familyreceived by its members. The fact that there is no provision in the Act dealingwith a converse position does not affect the question, for the existence ofsuch a converse position is legally impossible under the Act. So long as theHindu undivided family exists, the individuals thereof cannot separately beassessed in respect of its income. Nonetheless, if, under some mistake, suchincome was assessed to tax in the hands of the individual members, which shouldnot have been done, when a proper assessment was made on the Hindu undividedfamily in respect of that income, the Revenue had to make appropriateadjustments; otherwise, the assessment made in respect of that income on theHindu undivided family would be contrary to the provisions of the Act,particularly s. 14(1) of the Act. We, therefore, hold that if the assessmentproceedings initiated under s. 34 of the Act culminates in the assessment ofthe Hindu undivided family, appropriate adjustments have to be made by theIncome-tax Officer in respect of the tax realised by the Revenue in respect ofthat part of the income of the family assessed on the individuals of the saidfamily. To do so is not to re-open the final orders of assessment, but inreality to arrive at the correct figure of tax payable by the Hindu undividedfamily.

12. The decisions, except one, cited at the Bar do not speak in a differentvoice : they are consistent with the view expressed by us.

13. The Lahore High Court in Jaikishan Das v. Commissioner of Income-tax,Lahore ruled that the provisions of s. 34 of theIncome-tax Act could not be rendered inapplicable merely because income whichwas alleged to have escaped from the assessment of a particular person wasincluded in the income of another person. The Allahabad High Court in JotiPrasad Agrawal v. Income-tax Officer, B Ward, Mathura : [1959]37ITR107(All) ,111) held that once the income of an association of members was charged toincome-tax in the hands of the members individually and assessments of themembers remained valid assessments, there could be no fresh assessment of theincome in the hands of the association. That conclusion was arrived at on aconstruction of s. 3 of the Act. Therein, Bhargava, J., speaking for the Court,observed :

'........ the income, whichwas earned by the Association, was assessed and charged to tax in the hands ofthe members of the association individually under one of the alternativesprovided under section 3 of the Income-tax Act.................

Section 3 of the Act, which isthe main charging section, only talks of charging the income of certain personsand does not talk of income-tax being charged on persons. This implies that thecharge is to be levied on an income only once. Whether it is to be charged inthe hands of one person or another can certainly be determined under section 3and other relevant provisions of the Income-tax Act. Section 3 is clear enoughto indicate that the same income cannot be charged repeatedly in the hands ofdifferent persons or in the hands of the same person.'

14. In that case there was no question of suppression of the fact of theexistence of an association of persons when the members were individuallyassessed. The decision proceeded mainly on the basis of the exercise of theoption conferred on the Income-tax Officer under s. 3 of the Act to assess anassociation of members or the members individually and that if once the optionwas exercised and the income was assessed in the hands of the members, it washeld that in regard to the same income the association of members could not beassessed. Where the Income-tax Officer first assessed a partnership firm butlater on issued a notice under s. 34 of the Act for assessing the allegedpartners of the firm as constituting an association of person, the AllahabadHigh Court in Moti Chandra v. Income-tax Officer, - District III (ii), Kanpur : AIR1962All291 , held that the Income-tax Officer hadjurisdiction to do so. Therein, Upadhya, J., adverting to Joti Prasad Agarwal'scase : [1959]37ITR107(All) said :

'The decision is wholly inapplicable to the case inhand. Here the assessment was never made either on members of the associationor on the association itself. It had been made on certain persons who claimedto be the partners of the firm Messrs. Rup Narain Ram Chandra. The Income-taxOfficer now wants to assess the association of persons which was not assessedto tax at all. Even the income of the members of the association had not beensubjected to tax in their hands. Section 3 therefore provides no bar to suchassessment.'

15. This is a case of an assessable entity, namely, as association ofpersons, escaping assessment, though the same income was assessed in the handsof the firm.

16. In S. Gyani Ram and Co. v. Income-tax Officer, A. Ward, Firozabad : [1963]47ITR472(All) , when the Income-tax Officer assessed a person to tax ona certain income and later on for the same income proposed to take action unders. 34 of the Act against another person, the Allahabad High Court held thataction under s. 34 of the Act could be initiated against him in respect of thesame income previously taxed on the ground that it had escaped assessment inhis hands.

17. These cases, except Joti Prasad Agarwal's case : [1959]37ITR107(All) accept the principle that the Income-tax Officer has jurisdiction to initiateproceedings under s. 34 of the Act, if the conditions laid down therein arecomplied with, against a person on the ground that the income, though it hasbeen assessed in the hands of another, has escaped assessment in his hands.They do not deal with the connected question, how the adjustments will have tobe made to avoid double taxation of the same income. The only question thatarises at the time the Income-tax Officer proposes to take proceedings under s.34 of the Act is, whether the income has escaped assessment or has been under-assessed in the hands of the person against whom the said proceedings areinitiated. At that stage, the question of resolving the conflict between theproposed assessment and an earlier assessment made on a wrong person does notarise.

18. Some argument was advanced on the question of the validity of what arecalled 'protective or precautional assessments'. Reference was madeto Jagannath Hanumanbux v. Income-tax Officer : [1957]31ITR603(Cal) and to thedecision of this Court in Lalji Haridas v. Income-tax Officer : [1961]43ITR387(SC) . In the former, the validity of protective assessment was approved; and inthe latter, this Court, though the question of assessment was raised, did notexpress its final opinion thereon. This Court held that when there was a doubtas to which person among two was liable to be assessed, parallel proceedingsmight be started against both; and it also laid down an equitable procedure tobe followed in that situation. In this case, the question of protectiveassessment does not call for our decision and we do not express our opinionthereon.

19. We, therefore, hold that the High Court went wrong in holding that theIncome-tax Officer had no jurisdiction to initiate proceedings under s. 34 ofthe Act against the respondent as the karta of a Hindu undivided family.

20. The High Court, as we have indicated earlier, has not expressed itsopinion on the question based upon s. 25-A of the Act. In the result, the orderof the High Court is set aside and the appeal is remanded to the High Court fordisposal in accordance with law. The costs of this appeal will abide theresult.